April 30th, 2013
On April 10, the White House released its FY 2014 budget request, almost two months late. The administration’s proposal, which was delayed in part due to the unusually late wrap up of the FY 2013 spending bills, comes after both the House and Senate passed their own budget resolutions for the fiscal year that begins this October 1.
Not surprisingly, the President’s budget looks much more like the Senate version than the more austere approach taken by the House. It would replace significant spending cuts required by the Budget Control Act of 2011 (BCA) with a mix of new revenue and targeted spending reductions and result in $1.8 trillion in deficit reduction over 10 years ($600 million in addition to the $1.2 trillion contained in the BCA), but would not reach balance over the 10-year budget window. However, it does include some provisions designed to reach out to Republican House and Senate members, including a change to the way the government calculates cost of living increases (through so-called “chained CPI”) and modest entitlement reform. Additionally, it suggests changes to the tax code, including a cap on tax deductions at the 28 percent rate, which many say would reduce incentives for charitable giving by high-income donors, including gifts to colleges and universities.
While the administration’s budget would increase education spending by $3.1 billion (4.5 percent) over the FY 2012 level, most of that increase is earmarked for new programs such as a “Race to the Top” for higher education, a new early childhood program, and funding for K-12 school improvement and redesign. In general, the proposal is very similar to the one the president made for FY 2013, and most higher education programs, including SEOG, TRIO, GEAR UP, and aid for Hispanic-Serving Institutions (HSIs) would be funded at the FY 2012 level (which would mean an increase over the post-sequester FY 2013 amounts). Of particular interest to the CSU, the budget request would allow for an increase in the maximum Pell Grant award from $5,635 to $5,785 and retain Pell Grant savings in the program for use in future years, increase Federal Work-Study funding from $976.7 million to $1.127 billion, increase international education and foreign language studies from $74 million to $81 million, and expand Income-Based Repayment for student loans to provide borrowers with a more flexible loan repayment option. In addition, the budget proposes a long term fix to student loan interest rates which would move them from a fixed rate to a variable, or market rate, based on the yield on 10-year Treasury Bonds. For subsidized Stafford loans, the new rate would be the 10-year bond rate + .93 percent, unsubsidized Stafford loans would carry a rate equal to the 10-year bond yield + 2.93 percent, and PLUS loans would have a rate equal to the 10-year bond + 3.93 percent. While these interest rates would currently be lower than the existing rates, there is concern, particularly among student groups, that they would prove more expensive for borrowers in the long run, as the proposal does not include a limit on the amount that interest rates could rise when Treasury Bond rates increase.
Also of interest to the CSU, the budget proposes making permanent the American Opportunity Tax Credit (AOTC), which helps middle-income families pay for college, and creates a new “America Fast Forward” bond, similar to Build America Bonds, to reduce the cost of financing repair and construction of public school and university infrastructure. Funding for AmeriCorps would remain level at $345 million, and funding for the National Science Foundation (NSF) would see an overall increase of 8.4 percent.
While the outlook for any proposed funding increases remains bleak in light of spending reductions already in law as part of the BCA, some in Washington are hopeful that a “Grand Bargain” on spending and deficit reduction – which could undo some of the BCA’s cuts - may yet be found. Some Republican senators, including John McCain (R-AZ), and Lindsay Graham (R-SC) have expressed hope that the President’s willingness to accept chained CPI, some entitlement reform and some sort of tax overhaul might yet lead to an overarching agreement. Should such an agreement occur, it will likely come about as a result of negotiations over the nation’s debt ceiling, which currently looks like it will need to be increased in the September-October time frame.